The role of integrated reporting and earnings management on the combined assurance and capital market liquidity relationship

Purpose - This study examines the role of integrated reporting (IR) and earnings management (EM) practices on the combined assurance model (CA) and the firms’ capital market liquidity (FCML) performance nexus. Based on a moderated mediation analysis, it examines the channels through which CA quality influences FCML performance. Design/methodology/approach - The study uses data from the top 100 firms on the Johannesburg Stock Exchange (JSE) based on market capitalisation, and a bootstrap moderated mediation model through Hayes Process Macro was adopted. Findings - The findings show that although IR quality mediates the CA quality and FCML performance nexus, the mediation is conditional on firms’ practices of EM, implying that the value of CA through IR to capital market participants is more pronounced for firms engaged in high EM practices. Practical implications - The findings emphasise the importance of the CA model in streamlining assurance processes, reducing assurance costs and enhancing the credibility of financial and sustainability reports, thereby improving capital market performance. Hence, it is a valuable assurance framework for International Financial Reporting Standards (IFRS) S1 and S2 compliance. Originality/value - This study uniquely lines up the CA model, IR quality and EM practices to project the value relevance and channel(s) through which the effective communication of the CA model influences FCML performance.